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How Will Nepal’s Government Respond to Victims of Loan Sharks?

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How Will Nepal’s Government Respond to Victims of Loan Sharks?

A former business partner of the home minister is wanted for embezzlement of funds of cooperatives.

How Will Nepal’s Government Respond to Victims of Loan Sharks?

Nepal’s Deputy Prime Minister and Home Minister Rabi Lamichhane at a media briefing in Kathmandu, Nepal, March 16, 2024.

Credit: Wikipedia/Morgankarki

Victims of loan sharks converged in the Nepali capital Kathmandu on February 23 to protest their exploitation by predatory lenders. Similar demonstrations were staged in other towns as well.

Most of those who participated in the the “March for Justice” campaign are people of the lower economic strata from the southern Terai plains. The campaign is being led by controversial businessman-turned-sociopolitical activist Durga Prasain, who has promised to get their loans waived.

The problem of loan sharks exploiting the poor is not new to Nepal. Loan sharking has long been the economic pillar that maintains the feudal structure in Nepali society. It formed the basis for the exploitation of low-income people by the feudal class. Landlords provided small loans at exorbitantly high and compounded interest rates. The borrowers would then work for the lender, expecting to repay the debt. However, the exorbitant rates of interest often meant that the amount to be repaid only increased. It led to generational poverty and generations of low-income families working for the lender. It manifested in extreme forms, such as the kamaiya tradition among the Tharus, an ethnic group from the Southern plains.

The borrowers, usually uneducated and lacking any social power, would often not keep a written record of what they had returned. This gave the lenders full control over the financial transactions and the victims’ families. Despite political changes, the system merely adapted, and the lenders still hold considerable power.

While loan sharking is a serious problem that deserves attention and action by the government, people are cashing in on it for their own benefit.

Among them is Prasain, a medical entrepreneur, who until a few years ago rubbed shoulders with the leaders of mainstream political parties. Despite the Khadga Prasad Oli-led government’s decision to grant affiliation once it fulfills all legal criteria in 2021, such affiliation never came. As a result, he struggled to repay bank loans of around 5.5 billion Nepali rupees ($45 million).

The disgruntled Prasain then decided to cash in on the loan sharking issue and took to the streets with a campaign to get loans from banks and loan sharks written off. To this, he added an end to corruption and the Hindutva nationalist agenda. He launched his public campaign on February 13, amidst the participation of the former King Gyanendra Shah.

Prasain’s agenda of Hindutva and monarchy align perfectly with the King’s agenda. The King did not attend his rallies in Kathmandu in March, though, and the Hindu nationalist Rastriya Prajatantra Party too has maintained qualified distance from Prasain. They have a common agenda but are cautious of Prasain’s reputation.

In a short period, Prasain has attracted thousands of supporters and a huge following on social media. Loan shark victims and Hindu nationalists form the primary supporter base. Now, people who have been denied justice by the state in other matters are approaching him.

The large number of participants in the protests has forced the government to take notice. Indeed, concern over Prasain’s rising popularity was reportedly among the reasons behind the government’s decision to ban TikTok, a widely popular social media site, and to impose restrictions on demonstrations in several parts of Kathmandu.

Then on March 25, the Supreme Court issued a directive to the Medical Education Commission and Kathmandu University to grant affiliation to the medical college owned by Prasain. This could have been timed to deny Prasain the narrative of victimization and weaken his attempt to project himself as the messiah of the loan shark victims.

Meanwhile, embezzlement of funds by the heads of cooperatives and micro-finance institutions, which received little scrutiny until recently, is also garnering attention. Member-based financial institutions that provide savings and credit facilities to their members only, cooperatives charge interest at a rate higher than commercial banks.

Several high-profile cases of embezzlement have flooded the news. The amount swindled is as high as $157 million. Tens of thousands of poor and working people have been defrauded of their hard-earned money.

Gitendra Babu Rai, chairman of the Pokhara Suryadarshan Savings and Credit Cooperatives has been in the news for embezzling $7.5 million from the cooperative. After the Nepal police issued a warrant for his arrest, Rai is reported to have fled to Malaysia. Interpol issued a diffusion notice against Rai in January.

Several of these cooperatives’ heads have ties with people in high places. This was the case with Rai, who is a former business partner of Deputy Prime Minister and Home Minister Rabi Lamichhane of the Rashtriya Swatantra Party (RSP).

Lamichhane was formerly the managing director of Galaxy 4K Television, which Rai owned. During Lamichhane’s term as CEO of the television company in 2022, he received $750,000 from Rai’s cooperative. Cooperatives can only lend to their members, and private companies borrowing from a cooperative is illegal.

Lamichhane denies involvement, and the amount transferred did not materialize. “My name has been dragged into the case, but there is no evidence to prove my involvement,” said Lamichhane to the State Affairs Committee. The main opposition party has demanded a parliamentary probe into the charges against Lamichhane.

Prime Minister Pushpa Kamal Dahal and Khadga Prasad Oli, the leader of the largest coalition partner, have strongly supported Lamichhane. Ironically, as the home minister, Lamichhane is in charge of investigating cooperative frauds.

The development has put the government, particularly Lamichhane, in a tricky situation. While the government has taken a strong public stance, stating that loan defaulters like Prasain will not be spared, it is wary of public anger escalating into anti-government and anti-establishment protests.

Lamichhane faces a two-fold challenge. On the one hand, as home minister, he has to uphold the law and maintain law and order. Prasain aims to benefit from the victims’ mistrust of the government and revel in the chaos. However, the suffering of the victims is a genuine concern that needs to be addressed. Conversely, the more Lamichhane gets dragged into the cooperative scam, the more his party could take a hit in its image of an outsider party committed to erasing corruption. It could affect his political ambition.

A successful management of the issue will have positive implications for the economy and the rule of law. The victims will get justice and the perpetrators, appropriate punishment. It will also boost the politics of Dahal and Lamichhane.